Question 3a
On 1 January 2015, Palistar acquired 75% of Stretcher’s equity shares by means of an immediate share exchange of two shares in Palistar for five shares in Stretcher.
The fair value of Palistar and Stretcher’s shares on 1 January 2015 were $4·00 and $3·00 respectively.
In addition to the share exchange, Palistar will make a cash payment of $1·32 per acquired share, deferred until 1 January 2016.
Palistar has not recorded any of the consideration for Stretcher in its financial statements.
Palistar’s cost of capital is 10% per annum.
The summarised statements of financial position of the two companies as at 30 June 2015 are:
| Palistar | Stretcher | |
|---|---|---|
| $’000 | $’000 | |
| Assets | ||
| Non-current assets (note (ii)) | ||
| Property, plant and equipment | 55,000 | 28,600 |
| Financial asset equity investments (note (v)) | 11,500 | 6,000 |
| 66,500 | 34,600 | |
| Current assets | ||
| Inventory (note (iv)) | 17,000 | 15,400 |
| Trade receivables (note (iv)) | 17,000 | 10,500 |
| Bank | 2,200 | 1,600 |
| 33,500 | 27,500 | |
| Total assets | 100,000 | 62,100 |
| Equity and liabilities | ||
| Equity | ||
| Equity shares of $1 each | 20,000 | 20,000 |
| Other component of equity | 4,000 | nil |
| Retained earnings – at 1 July 2014 | 26,200 | 14,000 |
| - for year ended 30 June 2015 | 24,000 | 10,000 |
| 74,200 | 44,000 | |
| Current liabilities (note (iv)) | 25,800 | 18,100 |
| Total equity and liabilities | 100,000 | 62,100 |
The following information is relevant:
| (i) | Stretcher’s business is seasonal and 60% of its annual profit is made in the period 1 January to 30 June each year. |
|---|---|
| (ii) | At the date of acquisition, the fair value of Stretcher’s net assets was equal to their carrying amounts with the following exceptions: |
| (iii) | Following an impairment review, consolidated goodwill is to be written down by $3 million as at 30 June 2015. |
| (iv) | Palistar sells goods to Stretcher at cost plus 30%. Stretcher had $1·8 million of goods in its inventory at 30 June 2015 which had been supplied by Palistar. In addition, on 28 June 2015, Palistar processed the sale of $800,000 of goods to Stretcher, which Stretcher did not account for until their receipt on 2 July 2015. The in-transit reconciliation should be achieved by assuming the transaction had been recorded in the books of Stretcher before the year end. At 30 June 2015, Palistar had a trade receivable balance of $2·4 million due from Stretcher which differed to the equivalent balance in Stretcher’s books due to the sale made on 28 June 2015. |
| (v) | At 30 June 2015, the fair values of the financial asset equity investments of Palistar and Stretcher were $13·2 million and $7·9 million respectively. |
| (vi) | Palistar’s policy is to value the non-controlling interest at fair value at the date of acquisition. For this purpose Stretcher’s share price at that date is representative of the fair value of the shares held by the non-controlling interest. |
Required:
Prepare the consolidated statement of financial position for Palistar as at 30 June 2015.
(25 marks)